Pre-virus job levels four years out: report

Outlook dire for some industries: Conference Board

The lingering pandemic will flatten and potentially stall Canada’s economic recovery into 2021 with nonenergy investment particularly hit, says a new report by the Conference Board of Canada.

Annualized non- energy, non- residential business investment will drop to about $ 130 billion early next year from almost $ 150 billion now, the Ottawa- based research organization forecasts.

“With the Canadian economy suffering through its sharpest recession in living memory, firms are likely to delay any major investment decisions until there is more clarity surrounding the pandemic,” the board said.

“Even after the economy emerges from the crisis, the negative effects of the pandemic will linger. Because capacity utilization rates have dipped and demand will take time to fully recover, many firms will have little incentive to invest in additional capacity until well after other sectors of the economy have recovered,” it said.

While the board’s forecast of a 6.6 per cent decline in 2020 gross domestic product is better than its earlier prediction of an 8.2 per cent drop and it says a recovery is underway helped by government aid programs, the outlook is dire for some industries.

Closures and declines in household spending will restrain the recovery’s pace into mid- 2021, board chief economist Pedro Antunes said. Pre- pandemic unemployment levels won’t return until 2025, he said.

“Air transportation is nearly shut down,” Antunes said in the report. “Accommodation, food and beverage services, textiles manufacturing, printing, motion picture, and sound recording are other examples of industries that remain hard- hit and face a tumultuous business environment for the foreseeable future.”

Household spending will fall by 9.1 per cent this year before expanding by 4.8 per cent in 2021 and 7.4 per cent in 2022, the board forecasts.

“In addition to government support for families, pent- up consumer demand helped to fuel the strong rebound in consumer spending, especially in the goods sector,” the economist said.

The board expects a full recovery in goods consumption by the end of next year, but says it will take a further six months for services such as tourism and travel.

Canadian housing will continue to accelerate in most markets with increased construction and resales before a pullback early next year, the board said.

“Slowing momentum and weaker government support will trim resale prices in early 2021, but a second- half recovery should produce a 6 per cent overall price increase,” Antunes said.

Statistics Canada reported Wednesday that output jumped 4 per cent in July and August, bringing gross domestic product to about 95 per cent of levels in February, the last full month before lockdowns began. At the depth of the recession in April, that number was 82 per cent.

By August, the economy had recouped about 73 per cent of output lost in March and April, the worst months of the first wave.

The rebound has been swifter than originally expected, but gains are uneven, the pace is slowing and a recent spike in the number of COVID- 19 cases in the country’s largest provinces is threatening future advances. Industries like hotels and entertainment face indefinite hardship, prompting some economists to revisit their prognosis for a full recovery.

An expected return to pre-pandemic levels “is likely to be pushed out as we incorporate second wave effects to a fuller extent than the risks we had previously flagged,” Derek Holt, head of capital markets economics at Bank of Nova Scotia, said by email.

Scotiabank had previously predicted output would fully recoup losses by the start of 2022, but “we’re now in the midst of another forecast round,” Holt said.

Nathan Janzen, senior economist at Royal Bank of Canada, said the GDP figures show the pace of growth in the economy “is clearly slowing. A lot of the early recovery has come from reopening from spring containment measures. And with most COVID-19 containment measures already eased, that boost won’t be repeated going forward. The latest bout of virus spread in Canada has just reinforced that there are probably limits to how much the economy can recover as long as that threat remains.”

Wednesday’s release from Statistics Canada shows June was the peak month for economic growth, with output up 6.5 per cent. That was followed by a 3 per cent gain in July and an estimated 1 per cent increase in August.

The numbers suggest third-quarter GDP is on pace for annualized growth of well over 40 per cent, easily a record expansion after the worst- ever contraction between March and June.

Starting in the fourth quarter, growth will average about 4 per cent annualized over the next year, according to economists surveyed by Bloomberg. Those forecasts don’t incorporate a major second round of shutdowns.

Some parts of the economy are faring better than others. Agriculture and forestry, along with retail trade, real estate and banking have all surpassed February levels of output. Restaurants, energy and transport are still well below where they were in February.